"Festival Hall was a principal live music venue in Victoria from the 1950s until the 1980s and hosted some of the most important national and international musicians of that era," the background to the decision said.

Six key features of the interior of the building were identified as "intrinsic to its cultural heritage values", including the timber floor, its tiered seating and "highly intact original amenity areas".

The site was originally home to the West Melbourne Stadium, constructed in 1913, but after a fire in 1955, the building was reconstructed and renamed Festival Hall.

The venue hosted boxing and gymnastic events during the 1956 Olympics, as well as world-class bouts featuring the likes of Lionel Rose.

Since then, it has hosted international music acts such as Frank Sinatra and Fleetwood Mac, and more recently the Red Hot Chili Peppers, Ed Sheeran and Lorde.

Planning Minister Richard Wynne said the heritage listing did not stop redevelopment, but did restrict it.

"Important elements of Festival Hall will have to be retained, including the facade, the box offices, the tiered seating, and the developer will need to work with the Heritage Council to ensure that any future development of the site respects the rich heritage of Festival Hall," Mr Wynne said.

"It means that it can be redeveloped, but it has to respect the heritage of what is one of the most iconic buildings in Melbourne."

Co-owner warns venue cannot continue

One of the owners of Festival Hall, planning barrister Chris Wren QC, said the venue will no longer be able to host concerts.

"It's not going to be able to continue to operate, it's probably going to become a warehouse or something like that in due course," he told ABC Radio Melbourne.

He said the Victorian Government has poured money into upgrading other inner-city venues.

"It's difficult because of the fact that the State Government has spent hundreds of millions of dollars building competition for us — and then to expect us to continue to operate as a private enterprise is unrealistic," Mr Wren said.

"If they want it to continue then perhaps they should buy it at the highest, best price, and we'd be happy to sell it to them."

He said his existing proposal to develop the Festival Hall site had tried to recognise its historical significance.

"The proposal we've put together is obviously a proposal that [takes] into account … what our view of the heritage value of the building is, and we've kept elements of it in there that we think appropriately recognise people's memories," he said.

"Whether the Heritage Council ultimately agrees with that will be a matter that will have to be adjudicated on, I suppose, if we can't resolve it amicably."